02317cam a22002417 4500001000600000003000500006005001700011008004100028100002100069245016400090260006600254490004100320500001800361520130700379530006101686538007201747538003601819700002901855710004201884830007601926856003702002856003602039w3222NBER20180222003520.0180222s1990 mau||||fs|||| 000 0 eng d1 aGordon, Roger H.10aEffects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Formh[electronic resource] /cRoger H. Gordon, Jeffrey K. MacKie-Mason. aCambridge, Mass.bNational Bureau of Economic Researchc1990.1 aNBER working paper seriesvno. w3222 aJanuary 1990.3 aWe examine the effects of the Tax Reform Act of 1986 on the financial decisions made by firms. We review the theory and empirical predictions of prior literature for corporate debt policy, for dividend and equity repurchase payouts to shareholders, and for the choice of organizational form. We then compare the predictions to post-1986 experience. The change in debt/value ratios has been substantially smaller than expected. Dividend payouts increased as predicted, but stock repurchases increased even more rapidly which was unexpected and is difficult to understand. Based on very scant data, it appears that some activities have shuffled among organizational forms; in particular, loss activities may have been moved into corporate form where they are deducted at a higher tax rate, while gain activities may have shifted towards noncorporate form, to be taxed at the lower personal rates. In addition, several interesting new issues are raised. One concerns previously neglected implications for the effective tax on retained earnings that follow from optimal trading strategies when long- and short-term capital gains are taxed at different rates. Also, new interest allocation rules for multinational corporations provide a substantial incentive for many firms to shift their borrowing abroad. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aMacKie-Mason, Jeffrey K.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w3222.4 uhttp://www.nber.org/papers/w322241uhttp://dx.doi.org/10.3386/w3222